OPEC decides to keep oil production steady
Published: Wednesday, February 1, 2006 at 6:01 a.m.
Last Modified: Wednesday, February 1, 2006 at 12:00 a.m.
VIENNA, Austria - OPEC will keep production of crude oil steady, deciding Tuesday that its current output was enough to fuel an energy-hungry world as Iran pledged that it would not withhold its oil because of a standoff with the West over its nuclear program.
The Organization of Petroleum Exporting Countries said the market was well-supplied and reiterated that high prices have been due to refining bottlenecks and other factors.
One of those factors has been worry over Iran, which exports more than 2.6 million barrels of oil a day and is heading for a showdown with the United States and some European nations who fear its nuclear program could lead to weapons.
OPEC President Edmund Daukoru of Nigeria said Iran, one of the cartel's founders and its second-largest producer, had assured the group that it would not curtail its output.
"I wouldn't wish to jump to conclusions that by the mere fact of reference of the matter to the (United Nations) Security Council that we are bound to see disruptions in Iran," he said, adding that Iran assured him that it has never said it was going to cut production.
"If Iran has not said that they will shorten production then I don't see why anybody should be bidding up the market," Daukoru said.
He added that OPEC has about 2 million barrels a day of spare capacity - in addition to its current quota of 28 million barrels a day - should there be a need to produce more crude.
Analysts said that may not be enough to soothe jittery traders, who are concerned about Iran and also violence in Nigeria and the oil-rich Niger Delta.
Jason Schenker, an economist with Wachovia Corp., said the decision, and public affirmation of supply by Daukoru, could help soothe a jittery public but that world markets could take longer to gauge the effect.
"It will put people's minds at ease, but it might not be immediately digested by the market," he said, noting that oil prices might keep oscillating. "Some of the tension will come off the market and then we would anticipate prices to fall."
Crude for March delivery fell 55 cents to $67.80 a barrel on the New York Mercantile Exchange, in see-saw trading that saw it as low as $67.64. March ICE Brent in London was down 49 cents to $66.10 a barrel.
The decision to hold output steady had been widely expected after two days of informal meetings by the cartel's 11 members. Before the meeting, Iran had said a buildup of excess supply was a reason to cut production. Venezuela, which consistently defends high prices, had said it would support such a move.
Qatari oil minister Abdullah bin Hamad al-Attiyah said Tuesday a cut in output would be discussed at the March 8 meeting, noting that high oil prices now made any talk of a cut in the quota unsustainable.
"Last December we said that at the end of January we were going to cut 1 million. Now, we changed our decision because of the market situation," he told reporters. "So we're very pragmatic."
Saudi oil minister Ali Naimi, one of the most influential voices in OPEC, said Iran's standoff with the West and the possibility that it will be referred to the Security Council for economic sanctions were not a factor in Tuesday's decision.
Iran insists its nuclear program is aimed at generating electricity, while the U.S. and some European nations fear it could be used to develop nuclear weapons. The International Atomic Energy Agency, the U.N.'s nuclear watchdog, is to meet to discuss Iran on Thursday.
Envoys from Britain, China, France, Russia and the United States decided this week they would recommend the IAEA report Iran to the Security Council on Thursday - a move that Iran received coldly.
"Reporting Iran's dossier to the U.N. Security Council will be unconstructive and the end of diplomacy," said Iran's top nuclear negotiator, Ali Larijani, according to state television.
Naimi, the Saudi oil minister, discounted media reports that Iran had called for a cut in output ahead of the meeting and during the closed-door session. He said such reports were "completely not true."
"I did not hear the (Iranian) minister say anything, either before, during or after" the meeting, Naimi said.
Yasser Elguindi, senior managing director of Medley Global Advisors LLC, said the intense focus on Iran, and its increasingly belligerent stance, would be hard to shake off.
"The market is now so focused on this," he said, adding of Iran's pledge: "It's going to take much more than that to ease people's minds."
Naimi said the decision to hold output steady was unanimous. But the group seemed less cohesive on the question of whether a cut may come at the next meeting in March.
Naimi said he didn't think it was needed, but that "it's really too early to tell - we'll have to look at the market."
Venezuela's Rafael Ramirez was more succinct: "Yes, probably," he said.
Libyan oil minister Fathi Hamed Ben Shatwan said earlier that if a cut were made at the next meeting, it would take effect April 1 and be between 500,000 and 1 million barrels a day.
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